What Does a Knee Replacement Cost? The Stunning Story from One Hospital

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The Wall Street Journal’s Melanie Evans tells the mind-blowing tale of one hospital that decided to figure out how much a knee-replacement operation — the most common type of surgery in U.S. hospitals besides procedures related to childbirth — cost to perform.

By 2016, the La Crosse, Wisconsin hospital run by the Gundersen Health System set an average list price of more than $50,000 for the surgery, including the surgeon and anesthesiologist. That was well above the national average of about $34,000. But Gundersen administrators didn’t know what the procedure actually cost the hospital. It took a year and a half to figure it out. Evans writes:

Prompted by rumblings from Medicare and private insurers over potential changes to payments, Gundersen decided to nail down the numbers. During an 18-month review, an efficiency expert trailed doctors and nurses to record every minute of activity and note instruments, resources and medicines used. The hospital tallied the time nurses spent wheeling around VCR carts, a mismatch of available postsurgery beds, unnecessarily costly bone cement and delays dispatching physical therapists to get patients moving.

The actual cost? $10,550 at most, including the physicians. The list price was five times that amount.

Once the hospital determined the cost of a knee replacement, it set about to cut inefficiencies it discovered during its review and implemented changes that lowered its average costs by 18 percent — and, after facing some pressure from an employer group, it ultimately agreed to cut the price of the procedure for patients in the group.

The money quote: “When price isn’t tightly linked to cost, that is a sign that the market isn’t competitive,” said Harvard economist Leemore Dafny.

Why it matters: Evans’ story provides some powerful insights into how and why health care prices have spiraled higher — and a valuable reminder that the problem doesn’t just lie with pharmaceutical and insurance companies. “Hospitals’ loose grasp on costs has helped fuel escalating prices in the hospital sector, the largest and most expensive in U.S. health care,’ Evans tweeted.

As editor in chief, Yuval Rosenberg oversees all aspects of The Fiscal Times' website and email newsletter. His writing has appeared in publications including BusinessWeek, CNBC.com, CNNMoney.com, Fast Company, Fortune, Newsweek, Money and Time.